The main reason the short-run aggregate supply curve is upward sloping is that input costs decline as more goods and services are produced.

Question

Quizplus · Accepted Answer

The main reason the short-run aggregate supply curve is upward-sloping is due to the sticky wages and prices. As output increases, firms need to hire more workers, causing a shortage of labor, which leads to higher wages. Similarly, an increase in output leads to higher demand for inputs, causing an increase in input prices, which reduces the profitability of firms, and they reduce output. Therefore, the SRAS curve is upward sloping because of these temporary sticky prices and wages.

The Main Reason the Short-Run Aggregate Supply Curve Is Upward